Achieving Shared Prosperity in the Middle East and North Africa

In terms of the World Bank’s twin goals of eliminating extreme poverty and boosting shared prosperity, the Middle East and North Africa Region was making steady progress. The percentage of people living on less than $1.25 a day was 2.4% and declining. And the incomes of the bottom 40% have been growing at higher rates than average incomes in almost all MENA countries for which we have information.

Yet, there were revolutions in several countries and widespread discontent. Why?

First, unemployment rates in MENA[5] are among the highest in the world and especially high for young people and women. In addition, good jobs are hard to find. More than 80% of the people in the region believe that “wasta” or connections in high places are critical to getting a good job.

The second reason is the poor quality of public services. Despite near full school enrolment, students are not learning as much as they should when they are in school. MENA students are underperforming relative to their peers in other developing countries on standardized 8th grade math tests. Even in some high income Gulf economies, students are underperforming.

One of the reasons for the poor education outcomes is the shortage of qualified math teachers. More than half of the students in the region attend schools with a severe shortage of qualified staff. The situation is particularly dire in Tunisia, Syria, and Morocco, but it is a problem even in the GCC economies. And teachers are frequently absent from schools. In Yemen, for instance, teachers are absent 20% of the time and doctors are absent nearly 40% of the time. Teacher and doctor absenteeism is a problem not only in low-income Yemen, but also in middle-income Egypt and Morocco.

The third reason for the dissatisfaction is the fact that expensive energy subsidies have benefitted the rich. The top 20% of households consume 60% of the energy subsidies. Not only are energy subsidies benefiting affluent households, they also benefit the politically connected firms. In Egypt, for example, firms with political connections[6] are disproportionately present in high energy-intensive industries.

Fourth, and more fundamentally, economic growth has been low[7] in per capita terms. It averaged between 2 and 3% during the last decade when other middle-income economies grew at much higher rates. Growth has been slow despite policies to encourage industrial development. Industrial policies have not worked in the region because they have been captured by the powerful and those with connections. In Tunisia, for example, the Ben Ali family not only owned companies in a diverse set of industries from banks to pharmaceutical companies, hotels, and dealerships, to name a few, but they used their influence to pass regulations that restricted entry[8] into the industries in which they were present. As a result of this regulatory capture, the private sector in MENA lacks dynamism. In Egypt[6], for example, firms stay small as they age because they have few opportunities to grow into medium-sized and large firms.

Since 2011, the situation in the region has gotten worse. Unemployment rates have gone up because growth has slowed down and even collapsed in some of the transition economies. Unemployment rates are higher than those observed prior to the Arab Spring. Several countries are facing macroeconomic crises[9]. Investment has plummeted and fiscal and external balances worsened.

So what can be done to boost real shared prosperity in the Middle East and North Africa? Two things must be done. First, leveling the playing field is a priority because everyone must have a fair opportunity for success. Regulations should not favor the privileged. Vulnerable households should be supported with targeted cash transfers that replace general subsidies. Second, citizens should hold the state accountable, rather than the other way around. Getting there will not be easy. One important step will be to start measuring those things that matter for real shared prosperity, for example, progress towards eliminating Wasta (privileged jobs), regulatory capture, and provider absenteeism. By collecting information and sharing it with the public, citizens will be empowered to act and improve their chances of achieving shared prosperity in the Middle East and North Africa.